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401(k)

A 401(k) is an employer-sponsored retirement plan that lets employees defer pre-tax (or Roth) salary into an investment account. Most employers match contributions up to a limit.

By the TRRP Editorial TeamUpdated 2026SSA · IRS · CMS data

Definition

A 401(k) is an employer-sponsored retirement plan that lets employees defer pre-tax (or Roth) salary into an investment account. Most employers match contributions up to a limit.

Why it matters in retirement

For most Americans, the 401(k) is the largest retirement asset they'll ever have. The decisions you make in your 50s — contribution rate, Roth vs traditional, investment selection, rollover timing — determine whether that account funds 20 years of retirement or 30.

Key numbers · 2026
Contribution limit (2026)
$24,500
Age 50+ catch-up
$8,000
Age 60–63 super catch-up
$11,250
Total 415(c) limit
$72,000
Pros
  • Pre-tax contributions reduce current tax
  • Employer match = instant return
  • High contribution limits
  • ERISA creditor protection
Cons
  • Limited investment menu
  • High fees in some plans
  • Early withdrawal 10% penalty before 59½
  • RMDs start at 73

Common mistakes

  • Not contributing enough to capture the full employer match
  • Rolling over to an IRA with worse investment options
  • Cashing out when changing jobs
  • Ignoring Roth 401(k) option in lower-income years
The part most people miss

The "rule of 55" lets you access 401(k) funds penalty-free if you leave your employer in the year you turn 55 or later. Rolling the account to an IRA eliminates that option — think twice before rolling if you plan to retire between 55 and 59½.

When you’re ready

Want help applying 401(k) to your situation?

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